The chief executive of the Office of Fair Trading said today that there was no case for the regulator to challenge the dominance of search giant Google.

John Fingleton said there was no evidence that Google was bad for consumers, arguing it had reached its leading position in the UK market legitimately.

"Where a company has achieved that position by superior innovation, foresight and better targeting of customers, we're very wary of intervening," he told MPs on the Commons culture, media and sport select committee.

"Thus far, while lots of people have talked to us about harm to competitors, nobody has articulated to us harm to customers or related companies in this market," Fingleton added.

"Nobody has brought us a good, convincing case around this type of issues. We see a lot of customers benefit from what's happening in this marketplace from very high innovation – it's good for the British economy. We don't want to send a negative signal about that."

He said it was unlikely that any concerns about Google's size in the UK would be viewed in isolation from regulators in Europe and the US, where concerns about the company's activities had concentrated on consumer protection and privacy.

Murdoch has threatened to take content from his newspapers, which include the Sun, the Times and the New York Post, off Google's search engine index and behind a paywall. The BBC today ruled out charging for its website, emphasising its commitment to providing free access to online news.

Fingleton also told MPs the OFT was surprised not to have been dealing with mergers between "failing firms" that had run into trouble in the recession over the past year.

"This time last year with the financial crisis, we anticipated we would see failing firm mergers. It has been the dog that has not barked," he said. "We haven't seen the incidence of failing firm mergers that we have seen from previous downturns."

Fingleton and his opposite number at media regulator Ofcom, Ed Richards, told MPs they did not have any powers to handle complaints from local newspapers about councils launching taxpayer-funded papers and news-sheets.

"The extent to which this is really harmful in the market is something we have struggled to understand," Fingleton said.

He contrasted the £3bn value of the local newspaper market with £50m of local authority expenditure on their newspapers.

"There's an issue about what local authorities are doing in this space. It's not as big an issue as the internet and the decline generally facing newspapers," he added.

"There may very well be a problem in terms of harm to the democratic process. We would have to look at whether readers are harmed or advertisers are harmed – it seems here the harm is to competitors."

Fingleton said the OFT would have to have evidence that local authorities were able to monopolise local markets and raise prices as a result.

Asked by Adrian Sanders MP about the danger of councils using such newspapers to peddle propaganda, Fingleton replied: "That's not a competition issue – that's an issue about what local authorities are doing.

Richards admitted there was a gap in the supervision of council papers: "We have no remit on that. The OFT has no remit on that. There's a lacuna.

"If there's a serious issue from the perspective of the use of taxpayers' money and the consequences for independent journalism in any given locality, it's something parliament has to decide what it wants to do about. Either the government needs to give guidance or get somebody responsible to look at it."

Fingleton added: "It can be a very efficient way of reaching a target audience rather than advertising through third-party publications. There's a darker side, whether this is about subverting the process of accountability and so forth but it's unlikely to show up as a breach of competition law."

He suggested any reform should be made at national level rather than at "196 local levels".

Richards also brushed off the threats to Ofcom's role made by the Conservative party, which has vowed to curb its powers.

"Nobody is going to abolish Ofcom. If you did that you would have to get somebody else to do what we do. There's an interesting debate we're very comfortable to be part of," Richards said.

"There are activities we do that somebody is going to have to do. If we were doing things we didn't have to, we would stop doing them tomorrow. There's always uncertainty and there's going to be more uncertainty in the period before and after an election. Frankly, we live with that."

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